Capital expenditure is money spent to acquire an asset that will be owned for several years. Which is an example?

Capital expenditure is money spent to acquire an asset that will be owned for several years. Which is an example?

• A. Salaries
• B. Machinery
• C. Rent
• D. Office stationery

Answer: (B)

Capital expenditure is money spent on acquiring or improving an asset that will provide benefits over more than one year. Those assets appear on the balance sheet and are depreciated over their useful life. Machinery fits this idea because it’s equipment that your business will own and use for several years, so its cost is treated as a fixed asset and then gradually expensed through depreciation. In contrast, salaries are payments for work done in the current period, and Rent and Office stationery are costs of running the business in the period (they’re typically charged as expenses in the same year). They don’t create a lasting asset, so they’re revenue expenditures.

Capital expenditure is money spent on acquiring or improving an asset that will provide benefits over more than one year. Those assets appear on the balance sheet and are depreciated over their useful life. Machinery fits this idea because it’s equipment that your business will own and use for several years, so its cost is treated as a fixed asset and then gradually expensed through depreciation.

In contrast, salaries are payments for work done in the current period, and Rent and Office stationery are costs of running the business in the period (they’re typically charged as expenses in the same year). They don’t create a lasting asset, so they’re revenue expenditures.